The plaintiffs claimed in response that no material details were concealed, and that at the time the policy was made, the company and the directors were not aware that their conduct gave rise to a fear of a negligence lawsuit against them. It was also argued that the argument regarding retroactive coverage shows a lack of good faith on Migdal's part. According to the plaintiffs, in 2001 the company insisted on providing retroactive coverage from September 11, 1996, and this was also agreed, while in 2002 the policy was renewed with a change in the date of the start of the retroactive coverage by Migdal, without drawing the company's attention to this material change. Finally, it was argued that the exception to clause 4.14 of the policy regarding a claim filed through the company (anchored in clause 4.14.3) allows the filing of a claim on behalf of the company when it is filed by a "liquidator, receiver or authorized manager appointed by a competent authority". It was argued that in our case, CPA Derman is a "licensed manager" who was appointed by the District Court for the purpose of formulating a recovery plan for the company. Therefore, the lawsuit, filed by CPA Darman on behalf of the company in the framework of his position as an authorized manager, is not excluded from the insurance coverage.
B.4. The Parties' Claims Regarding the Accountants' Liability
- As stated, the lawsuit was also filed against the company's accountants in the relevant years: CPA Shaporan, who was the company's accountant and auditor from January 6, 2002 until the signing of the audited reports for 2001 (end of 2002), and CPA Milner, who was the company's auditor from the date of its inception until the date on which CPA Shaporan assumed his position as the company's auditor. CPA Milner died even before he was questioned about his affidavit in the trial court.
In their lawsuit, the plaintiffs claimed that the accountants were negligent in their role as auditors of the company and violated their duty of care towards the company, by failing to apply the accepted accounting rules in auditing and preparing the company's financial statements for the years 1999 and 2000, and especially when they did not prepare consolidated financial statements of the company and the subsidiary. As a result of this negligence, it was argued, the financial statements did not adequately reflect the company's financial situation, and included only a "warning light", when they should have included clear and unequivocal warnings and warnings, which had the power to cause the directors to cry out even without professional advice and assistance in reading and understanding the financial statements. It was argued that the accountants were also negligent in not taking any active action to inform the board of directors, the shareholders, or the parents of the inmates of material deficiencies that were discovered in the company's accounting control, and thus prevented the early detection of these failures (which mainly included failure to provide information on time and failure to prepare financial statements in a timely manner).